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Derivatives

Lehman Advises Credit Investors To Buy Protection

Lehman Brothers is recommending traditional long-only credit investors, who have shied away from using credit-default swaps, consider doing so now to lock in high-grade corporate bond profits as bonus season and year-end approaches.

Lehman Brothers is recommending traditional long-only credit investors, who have shied away from using credit-default swaps, consider doing so now to lock in high-grade corporate bond profits as bonus season and year-end approaches. Joan Genirs, credit strategist in New York, said investors with a strong view that cash market valuations are rich should turn to the structured market.

"Given our expectations that credit will continue to be strong, it's better to buy options as insurance rather than go underweight credit," added Sunita Ganapati, senior v.p. in the structured credit group at Lehman. Because of market expectations demand will outpace supply for the rest of the year, investors who have done well this year would be wise to buy protection rather than sell bonds and potentially miss out on further spread tightening, said Genirs.

The recommendation comes as liquidity in the CDS market continues to improve, with more real money investors entering the synthetic market to circumvent the technical issues present in the cash market, Genirs noted.

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